Thursday, July 23, 2009

Should newspapers charge for online content?

As I work in the Media vertical in my organization, I am constantly bombarded with information about how newspapers are struggling as more and more readers turn to online modes of news consumption. The web is abuzz with articles on the biggest problem newspapers are facing today - online revenue is growing, but not fast enough to make up for falling print advertising. This got me thinking about what could be the real reason behind this.

In an ideal world, the amount of revenue generated by one medium should be somewhat proportional to the readership of that medium. Example, if 30% of NYT’s readership comes from and 70% from the offline newspaper, around 20-30% of ad revenue for NYT should also be generated from This is clearly not the case; otherwise the above problem might not have arisen.

One factor that comes to mind is that the effectiveness of online advertising can be measured much more easily and accurately than offline advertising. For example, it is very easy to find out how many people clicked on your ads on a news website, but very difficult to measure how many readers paid attention to an ad posted on page 5 of a newspaper. The only measure of effectiveness advertisers probably went by over the years was the sales volume, which may or may not have been impacted solely by the ads they published in newspapers.

Hence, for all the decades that companies had been posting ads on offline newspapers, they may never have been able to guess the value (eyeballs) generated by their ads with a great deal of accuracy. So they continued to pump in a lot more money than it was probably necessary, into newspaper ads.

But advertisers today are no longer constrained by limited amounts of information about online ads. Hence they are now perhaps not going over-board with their online ad spending. The amount of online ad spend is being driven by more precise information about the value obtained. Thus, advertisers are perhaps not being as profligate with their online ads spending today, as they had been with offline ads all these years.

The rise of targeted online advertising might also be a reason for the dip in proportional revenue. While in an offline newspaper, targeted advertising would only be limited to placing a sports equipment ad on the sports page, or placing a home furniture ad in a special home improvement supplement, online ads can be targeted based on the reader’s demographic and historical browsing data.

This factor is making advertisers smarter; helping them place ads with more accuracy, and spend more wisely. They are now paying for ads to be displayed to only a subset of readers accessing the news website that belong to their target segment, and not for the entire population. Thus, advertisers are perhaps spending less on online ads for a new campaign as compared to what they might have done in an offline counterpart in yesteryears.

The above factors, along with other drivers like higher number of avenues for advertising available today (mobile, TV, non-news websites etc.) as compared to the past, might be key reasons why online ad revenues are not being able to reach the same heights as offline revenues of the past.

Charging users for online content seems to be the favorite line of thought pursued by most media houses today, for increasing online revenues. I beg to differ with this strategy. Free content is the very DNA of the internet. All great internet innovations, from e-mail to social networking, have thrived on being free to the end user (How many takers did we see for the paid 20 MB e-mail accounts that that Yahoo and Hotmail used to offer to users when the free accounts had 2 MB space, in the pre-Gmail era?). Hence, charging for online content might not be the wisest thing to do. Especially since one is always likely to find relatively equivalent quality of free content somewhere else on the web.

The problem caused by data can perhaps also be solved with more data. It might be a good idea for news websites to invest more heavily into web analytics and obtain greater degrees of information about their readers and their reading behavior. This could help them broaden the gamut of options they provide advertisers for targeted advertising; and even explore options that advertisers have never done before. This can drive newer and more diverse ways for posting targeted ads; and consequently earn them more revenue.

The utopian aim should be to reach a stage where they have enough information so that all the ads shown to no two readers on the same webpage are exactly the same. After all, one of the key advantages the web has over offline mediums is that it is not constrained by size and shape. While one can only stuff in so many ads in a copy of an offline newspaper, the avenues for customizing content on a web-page are limitless.

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